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The Fundamental Reason Buffett Beats the Market
Other investors overlook valuable pieces of information that yield winning stock picks.
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Eugene Fama and Richard Thaler, two legendary finance professors at the University of Chicago, recently had a debate about whether markets are efficient. Fama was generally perceived to have gotten the better of the exchange, and I tend to agree with him -- the efficient markets hypothesis isn’t strictly true, but it’s a great baseline for thinking about markets.
But Thaler was probably being too nice in the debate. There are a number of holes in the EMH that go beyond the problems that the two brought up. One of these is the persistent success of investors who rely on fundamental analysis -- the technique of making bets about companies’ true value by looking at their financial statements.